Rising numbers of frequent business travellers fly in economy class and the trend is intensifying. By Doug Cameron.

Business class seats may be getting flatter and IFE screens even bigger but the battle for premium passengers is moving inexonerably towards the back of the aircraft. For all the product upgrades in first and business classes, many frequent flyers now travel economy either because they have to or because they choose to.

With passengers migrating backwards as the global financial crisis takes hold, airlines face the difficult task of halting this trend and luring business passengers back to the premium class cabins. As full fare-paying premium loads threaten to nose dive, retaining this market segment is placing pressure on a range of airline functions including product development, crew training and yield and data management.

The management of these passengers and the potential boost in yields they represent is one of the most complex tasks facing the industry. "Traditionally, even before these difficult times, 30% of economy passengers were frequent business travellers," says Keith Yates, chief executive of Performa, a Hong Kong-based consultancy. "A lot of people in airline operations departments do not realise how many high-value passengers are there."

Simple options

Airlines maintain that they are seeing little slippage from premium to economy on long-haul sectors and most tend to question the rationale for boosting service levels in economy. Most marketing efforts centre on limited on-board improvements coupled with more aggressive marketing efforts on the ground. "It's extremely difficult to create an attractive on-board product for the full-fare economy passenger which will make them believe that they are getting value for money," admits Rupert Duchesne, vice-president marketing at Air Canada. "The real battle is with the quality of frequent flier programmes and the service on the ground," he adds.

While carriers can track premium passengers through their frequent flier programmes, offering lounge access and priority check-in, home comforts on the ground have little impact if the economy class service is poor. The options are simple: improve the economy product, offer an additional premium economy class or find another way to identify the high-value customers.

So far efforts to address the loss of revenue from business passengers flying economy have been patchy. The premium economy cabins of carriers like Virgin Atlantic and Ansett International have been an unqualified success in their niche markets. But some airlines say they cannot justify the loss of economy class seats and economies of scale involved in adding an extra class. "The economics of mid-class make a great deal of sense but it is difficult to install full third cabins [for space reasons]," says Duchesne.

However Air Canada and Delta are among those to have introduced preferred seating areas in economy, just behind the business cabin, where service can be monitored more closely and touches such as greeting passengers by name and hanging up jackets continue. "The trick is to under-manage expectations and over-deliver on service," says one executive. "You would be surprised at the difference that free newspapers, a good cup of coffee and hanging up your jacket can make," says Yates. Duchesne says Air Canada also offers this segment a guaranteed number of free upgrades every year to give them a taste of the business class product.

The goal of capturing and retaining high-value economy passengers is finally leading to improved economy class products. British Airways and Singapore Airlines (SIA) have recently relaunched their economy classes with improved seats and services, notably inflight entertainment and catering. SIA, for example, has highlighted the availability of laptop computer points in all economy seats in a clear nod towards the business market. "The best solution is to have a great economy class," agrees Tim Clark, commercial director at Emirates.

The range of solutions to capture these drifting premium passengers suggests that most carriers are on a steep learning curve to find a sustainable answer which can survive economic downturns. Airline staff have become more proactive in addressing the problem: one Cathay executive says cabin crew on the carrier used the simple device of targeting economy passengers in suits for extra attention. SIA now places a special stamp on the boarding passes of frequent travellers in economy allowing cabin crew to identify them. There is also a manual system to prevent frequent travellers with deep discount tickets from being seated at the back of the aircraft.

Lifetime value

This approach reflects a deeper problem for airlines. While millions have been poured into targeting particular segments of passengers, there has been little research into identifying the lifetime value of a particular customer. Databases allow the cross-marketing of everything from credit cards to favourite wines, but as yet they are unable to estimate how much a passenger will spend on air travel in their lifetime and track them through good and bad times. "Data systems are far too primitive and the reservation systems don't interact with marketing databases," says Yates. SIA has sought to address this by identifying frequent travellers in its database who had not recently flown premium and writing a personal letter to each, renewing their premium loyalty memberships.

Airlines continue to put a brave face on the fall-off in premium-class travel, but there is little doubt that the migration to economy will intensify, even on longer sectors. The challenge is to keep these passengers content through a downturn without making economy class so good that they won't return to the front of the aircraft.

Source: Airline Business